Greece has, as you may not be surprised to find out, a particularly expansive nanny state. The government is the largest employer and people feel like government jobs are no-show jobs. It has been thus for decades. Because of this, they have been living beyond their means. They spend more than they produce and now that they are part of the EU, they have borrowed more than their economy can produce.
Unfortunately, Italy, Spain, and others are in a similar mess. Worse, so is France and the Netherlands. Indeed, perhaps even Germany is in trouble. As a result of all this, these countries (except perhaps Germany) are seeing the cost of borrowing go up to unsustainable levels (7%). Their S&P ratings have gone to junk status.
Now, the integrity of the EU is threatened. The ministers are meeting and frantically working to fix things, but they seem to be as able to meet agreement as our special deficit reduction committee is. If they can’t solve this, the EU faces a high likelihood of dissolving and then we’d see the ramifications of that spreading out over the entire world. No one would buy shit anymore and even China and Brazil would be affected.
The Europeans, it seems, need a Union bank, similar to the Federal Reserve, that can set monetary policy for the entire EU. In this way they can start to control the borrowing and interest rates and make the interdependence of EU states more manageable. As with the political situation in the US, the solid countries don’t want to pay the debts of the poor countries. Unfortunately, if they don’t do it, the economy will crash. Countries really are too big to fail.
There are lessons here for the US, but I won’t go on to those. I’ll leave it here, for now.